Regulating Act

By 1773 the East India Company was in dire financial straits. The Company was
important to Britain because it was a monopoly trading company in India and in
the east and many influential people were shareholders. The Company paid
£400,000 annually to the government to maintain the monopoly but had been unable
to meet its commitments because of the loss of tea sales to America since 1768.
About 85% of all the tea in America was smuggled Dutch tea. The East India
Company owed money to both the Bank of England and the government; it had 15
million lbs of tea rotting in British warehouses and more en route from India.

Lord North decided to overhaul the management of the East India Company with
the Regulating Act. This was the first step along the road to government control
of India. The Act set up a system whereby it supervised (regulated) the work of
the East India Company but did not take power for itself.

The East India Company had taken over large areas of India for trading
purposes but also had an army to protect its interests. Company men were not
trained to govern so North's government began moves towards government control.
India was of national importance and shareholders in the Company opposed the
Act. The East India Company was a very powerful lobby group in parliament in
spite of the financial problems of the Company.

The Act said that:

That, for the government of the presidency of fort William in Bengal,
there shall be a Governor General, and a Council consisting of four
councillors with the democratic provision that the decision of the majority in
the Council shall be binding on the Governor General.

That Warren Hastings shall be the first Governor General and that Lt.
General John Clavering, George Monson, Richard Barwell and Philip Francis
shall be four first Councillors.

That His Majesty shall establish a supreme court of judicature consisting
of a Chief Justice and three other judges at Fort William, and that the
Court's jurisdiction shall extend to all British subjects residing in Bengal
and their native servants.

That the company shall pay out of its revenue salaries to the designated
persons in the following rate: to the Governor General 25000 sterling, to the
Councillors 10,000 sterling, to the Chief Justice 8000 sterling and the Judges
6000 sterling a year.

That the Governor General, Councillors and Judges are prohibited from
receiving any gifts, presents, pecuniary advantages from the Indian princes,
zamindars and other people.

That no person in the civil and military establishments can receive any
gift, reward, present and any pecuniary advantages from the Indians.

That it is unlawful for collectors and other district officials to receive
any gift, present, reward or pecuniary advantages from zamindars and other
people.

The provisions of the Act clearly indicate that it was directed mainly to the
malpractice and corruption of the company officials. The Act, however, failed to
stop corruption and it was practised rampantly by all from the Governor General
at the top to the lowest district officials. Major charges brought against
Hastings in his impeachment trial were those on corruption. Corruption divided
the Council into two mutually hostile factions- the Hastings group and Francis
group. The issues of their fighting were corruption charges against each other.
Consequently, Pitt's India act, 1784 had to be enacted to fight corruption and
to do that an incorruptible person, lord Cornwallis, was appointed with specific
references to bring order in the corruption ridden polity established by the
company.